Chapter 4.1, Problem 1R

Solution

Significance of given terms are to be explained.

Credit: Credit is defined as the amount taken by the borrower to buy goods and services with a promise to pay the amount to the lender in future. Credit is also known as the credit worthiness of the individual.

Principal: Principal has many financial definitions. It is defined as the actual amount of money borrowed in a loan by the individual.

Interest: Interest is the amount which the borrower must pay to the sum borrowed by the individual. Interest is classified in two types: Simple interest and compound interest.

Installment debt: Installment debt is a type of loan which is repaid by the borrower in equal installment over a specific period of time. For example, if a person taken loan for 24 months then 24 equal installments will be paid for 24 months.

Durable goods: Durable goods are the goods that can be consumed for a longer period of time. These products last longer than three years or more. These goods are somehow expensive also. example of durable goods are Automobiles, refrigerators and other appliances.

Mortgage: Mortgage is a debt which the lender has provided the owner with funds for buying the property. In respect to this, the owner will repay the loan to the lender within a specific time period.